Woah! A man separated from hid desired grass most certainly must resort to drinking.
I had lots of similar problems - and no-one to turn to with them. But I do remember the feeling of harassed frustration that befell me. It ain't a nice one, but the sensation of triumph once that hurdle has been overcome always felt very sweet.
There are a lot of unknown unknowns in your sad tale, NoPutt. Your screen capture and videos seem to indicate that your are operating in the Windows universe. And judging by the absence of anti-aliasing on your letters, probably not even a recent one.
Being a Mac person myself, there is only so much guidance I can offer you.
Then there are version compatibility issues between OS, PS and plugins - a Pandora's box of intricacies I do not care to touch the lid of.
But there is ONE glaring thing I noticed when again carefully studying your image above, this one:
And this is what makes me wonder: Your original file is in PNG format. That might - or not - neatly explain most of your woes including the Select Pixels incapability.
PNG is a great little format, not to worry, one that allows for transparency but does not support multiple layers and alpha channels. You actually could import your png file into Unity as is and try to use it as a billboard - you would have do some changes in the inspector though and the desired transparency would be a bit pixelated.
But your actions only make sense if you perform them in a Photoshop Document, PSD. You need to see these last three letters on top of the window in Photoshop. So try to create a new photoshop document in the same size, then drag and drop your .png thing onto it: it will create a new layer on top of background. Then take it from there as prescribed. Never perform any of the following manipulations on the bottom background layer!
Per aspera ad astra, poor pilgrim: Your path is fraught with distress, but even if you don't notice it, you are learning and getting better all the time. Mistakes are the best teachers. Oops, my triteness-overdose-alert just went off.